Written by Mr Ian Hempseed for Doctify

Mr Ian Hempseed is a partner and corporate lawyer who leads the team at Hempsons supporting groups of clinicians setting up consultant groups. Hempsons is a leading healthcare firm providing a full range of legal advice including commercial, employment, real estate and medical law expertise to providers ranging from individual clinicians to large corporates.

What are the benefits of working in a Consultants Group?

The push to join a Consultants Group may come from a private hospital or clinic which requires groups of consultants to take responsibility for running a unit and for recruiting new doctors. It may, though, come from  you. Some of the clearest benefits are as follows:

• Your professional life may become easier with peer support and the ability to share administration costs and staff.

• The more work you do collectively, the quicker you may be able to develop a brand which could help in marketing your services and  generating new work.

• A concern of consultants with a successful private practice is how to obtain payment for their goodwill when they retire. A Group can provide a pool of doctors to secure succession and also payment.

What are the pros and cons of the different legal structures which can be used to set up a Consultants Group?

The most flexible model is the traditional partnership which is the form generally used by GPs for their NHS practices. You can choose how you share the profits, manage the business, how you can exit and what you are paid on exit which might include your share of the goodwill.

The big downside is that a partnership is not a legal entity. Thus, each of the  partners has unlimited liability for defaults under any contracts the partnership enters into, which could be a lease of a clinic or a contract to provide services to run a unit at a private hospital or clinic.

Similarly, if any staff are employed by the partnership, the partners individually are responsible for meeting any employee claims. The liability of the partners is also joint and several, so one individual would bear the costs for another individual’s error. To the extent that the partnership does not have the funds to cover liabilities of the business, the partners might have to settle those out of their own personal assets.

Personal Liability

If you are concerned about personal liability the next stop could be to look at a limited liability partnership (LLP) which is a corporate entity. In other words, the members of the LLP would not have to fund any liabilities which the LLP has to third parties, unless they agree to do so between themselves. Contrasted with the traditional partnership, the LLP would enter into contracts in its own name.

Limited Liability Partnerships

The public deal for limited liability is that the LLP is registered at Companies House and has to make various information public on the statutory registers there, e.g. details of members and filing of annual accounts. A traditional partnership does not need to make its accounts publicly available.

An LLP could operate with similar profit sharing arrangements to a traditional partnership and, as with a traditional partnership, the profits would be taxed in the share of profits received by members and the LLP would not itself be taxed on its profits.

Other ways to limit personal liability

The other option for limiting personal liability would be a company limited by shares which, like an LLP, is a separate legal entity from its members and is registered at Companies House with the attendant responsibilities to make publicly available its annual accounts and the names of its directors. In the same way as an LLP, the company would be responsible for its liabilities.

In the context of a company, limited liability means that if a shareholder was due to pay £100 for his shares, his liability is capped at £100 as a shareholder. If the shares are paid for in full, he no longer has any liability as a shareholder.

How to make your decision

A company operates through two tiers, the owners who are the shareholders, and the directors who set the strategy and day-to-day manage the business. The Companies Act imposes statutory duties on directors, such as exercising independent judgement, using reasonable care and avoiding conflicts of interest. Thus, the individuals who serve as directors must know what these duties are and ensure by good governance that they comply with them.

A company is taxed on its own profits and further tax could be borne by shareholders on the receipt of dividends. Thus, often the choice between an LLP or a company limited by shares will come down to how profits are treated for tax purposes and that is where taking accountancy advice early is essential.

Sometimes LLPs are also preferred because they are much more flexible for dealing with changes of profit shares or the purchase of  membership interests on retirement from the LLP.

In a company there can be more complexity by having to issue, transfer or cancel shares to achieve the same ends. There might be other models worth considering, depending on what you want to achieve.

How would I be rewarded for my involvement in a Consultants Group?

This is an area where you must take accountancy advice at an early stage to understand the tax treatment of payments to you and how those would impact on the Group’s tax position.

As owners (a partner in a partnership, a member in an LLP or a  shareholder in a company) you could receive a distribution of profits. The  mechanism for distributing profits in a partnership or an LLP can be similar; in a company the distribution would be made by way of a dividend. With all the structures it would be possible to be paid a salary if you are an employee. You might also be paid fees for your clinical or administrative services.

You will need to understand whether patient fees are invoiced in the name of the Group or in the doctor’s name and whether these in their entirety form part of the Group income then to be shared out among the owners in accordance with a profit sharing policy.

This leads on to the obvious: whatever is agreed must be contained in a written partnership deed, members agreement (for an LLP) or a shareholders agreement (for a company) before you start any business and if any new partners, members or shareholders join they must sign up to the original agreement before they have any legal or clinical connection with the Group.

How could the Consultants Group be managed?

With small groups, the owners can be responsible for the management; in the case of a company that would mean the owners (shareholders) would also be the directors. However, the larger the number of members of the Group the more impracticable it becomes, and indeed less efficient, for all owners to have management responsibilities. Thus, the owners could delegate to a smaller management board the responsibility of setting  strategy and day-to-day operational matters.

You would agree how the board is elected and appointed and for how long they could serve. Rather than giving unfettered discretion to the board, you might list certain decisions of an extraordinary nature where the board would have to obtain the consent of the owners before they could implement that decision. Irrespective of what your board looks like, the rights of the owners would be contractually protected in the partnership/members/shareholders agreement.

Could I choose to leave and, if I did, could I receive a goodwill payment?

Whether a partnership, LLP or a company, the Group has flexibility in how to deal with this. It could set out circumstances in which it is mandatory for a doctor to leave and how a doctor could leave voluntarily.

You might wish to limit the number of doctors who could leave in close proximity as that might make the business unviable. Then you decide what a doctor should be paid (which may include their share of the business’s goodwill) and who should pay that. You will need to get the balance right between the individual’s desire to exit when they want and the interest of the remaining doctors to protect the future viability of the business. If, for example, the LLP or the company is to buy out the interests of the departing doctor, that could deplete the reserves set aside for future business.

Also, to protect the business for the remaining partners you may wish to restrict an outgoing doctor for a limited period from competing with the business of your Group.

What insurances and registrations would the Consultants Group need?

Whatever structure you choose, the Group is likely to need to be registered with the Care Quality Commission for all locations where CQC regulated activities are provided or managed. If you are the service provider then you will need to appoint a registered manager, who is in charge of the day to-day running of the business. You will also need to have a number of policies and procedures in place. The Group would also need to register with the Information Commissioner (ICO) for the personal data it holds.

Where the Group is a LLP or company providing healthcare/medical services, it will need cover for potential medical negligence on its part and/or on the part of its employees. This is in addition to the individual doctors maintaining their own indemnity insurance with one of the medical defence organisations or a specialist commercial insurer. You will also need insurance to cover employer’s liability (if you will be employing anyone) and potentially public liability.

Should accountancy advice be taken before the Consultants Group is established?

It is essential that you take accountancy advice at the same time as you start talking to lawyers about possible legal structures. The tax treatment of profit and distributions from the legal vehicle, and how payments would be treated on joining and retirement, could be the deciding factor as to the  structure you select.

For more information please visit ​www.hempsons.co.uk